Market & Economic Commentary

The Investment Company Institute (ICI) reported that assets traded in U.S. ETFs grew 56.9% in the 12-month period ended April 2010, according to Reuters. Total assets in U.S. ETFs reached $830.9 billion. ETF assets total $1.2 trillion worldwide, according to Bloomberg. The number of U.S. ETFs stood at 865 (749 Equity/110 Bond/6 Hybrid) in April 2010, up from 726 a year ago. An estimated 833 ETFs are currently in the pipeline worldwide. On some days more than 4 out of 10 trades on U.S. stock exchanges involve ETFs, according to Tom Lydon, editor of ETFtrends.com.

Tuesday, June 15, 2010

The Internet revolution is impacting the auto industry in a way that few anticipated. The Department of Transportation reported that the percentage of people in the U.S. under 30 years old with a driver’s license has been on the decline since 1998, according to Advertising Age. William Draves, president ofLern, a consulting firm focusing on higher education, believes that younger people are opting for public transportation over cars so they can use their wireless digital devices (think new laws against talking or texting while driving) and minimize downtime. The share of automobile miles driven by people aged 21 to 30 fell from 18.3% in 2001 to 13.7% in 2009, according to the Federal Highway Administration’s National Household Travel Survey.

James W. Paulsen, Ph.D., and chief investment strategist at Wells Capital Management, has provided some compelling data that makes a case for investing in stocks when the U.S. unemployment rate is high. Since January 1948 (monthly data), U.S. stocks posted an annualized total return of 20.43%for the highest quartile of unemployment rates, compared to an annualized total return of 7.34% for the lowest three quartiles.

The Barclays Capital "Original E&P Spending Survey" (conducted semiannually) predicts that worldwide E&P expenditures will increase by 12.0% in 2010, up from its 11.1% estimate six months ago, according to Barclays Capital. Spending is expected to total $447 billion, up from its earlier estimate of $439 billion. Here is the global breakdown: U.S. ($85 billion vs. $79 billion in 12’09); Canada ($27 billion vs. $23 billion in 12’09); and International ($335 billion vs. $337 billion in 12’09). Companies are basing their 2010 budgets on an average price of $73.56 (up from $70.16) for crude oil and $4.65 (down from $5.21) for natural gas.

While many state and local governments are struggling to find ways to balance their budgets, Corporate America has been boosting cash levels and curbing debt. In the past two years alone, total cash and short-term investments have risen 42.6%, 35.9%, and 30.8%, respectively, for the nonfinancial companies in the S&P 500, S&P 400, and S&P 600 indices, according to Standard & Poor’s. The cash holdings at these 1,500 companies (excluding financials) total well over $1 trillion. Over the same span, total debt increased by only 5.6% and 3.4%, respectively, for the nonfinancial companies in the S&P 500 and S&P 400, and declined by 8.5% for the nonfinancials in the S&P 600.